The British Economy since 1914

A Study in Decline?

Rex Pope

• Publisher: Routledge
• Year: 2014
• Print ISBN: 9781138181472
• eBook ISBN: 9781317884897
• Topic: History
• Subtopic: World History
• Index: History

An up to date short study which examines the key debates on British economic performance since 1914. Rex Pope considers the indicators and measures involved in assessing economic performance and then looks at issues affecting the economy such as the role of government, British entrepreneurship, the state of world markets, the effect of the two world wars and the importance of cultural attitudes towards industry.

PART ONE: THE BACKGROUND

1   INTRODUCTION

The title of this book suggests that there is a question as to whether the British economy since 1914 has been ‘a study in decline’. This may seem surprising. Even before the First World War, deficiencies by comparison with the USA, Germany and other countries had been remarked upon. Since then, there has been the inter-war slump and, subsequently, the disappearance of much of Britain’s traditional industrial base and a litany of criticism of this country’s economic performance in relation to, first, the rest of western Europe and, more recently, countries on the Asian shores of the Pacific Ocean. Even the slightly more encouraging comparisons, with Europe at least, of the past decade have been seen in terms of a levelling down to Britain’s standards.

But decline has only been comparative. It has not been all-embracing and uninterrupted. An index of Britain’s Gross Domestic Product (GDP)*, taking 1990 as 100, shows a five-fold growth from 22.9 in 1913, to 36.9 by 1950, 72.2 by 1973 and 106.2 by 1995. Real personal disposable income per head roughly trebled during the post-Second World War period alone. Moreover, rates of economic growth have, for much of the twentieth century, compared favourably with those of other less criticised periods in the country’s economic history. The nineteenth-century staple industries may have all but disappeared, but, at different times in the twentieth century, Britain has been the major European producer of motor vehicles, aircraft and even, if we discount the USSR, steel. Throughout the century, she has been a, if not the, major European centre for financial services and for a range of media-related industries [5, 44].

Thus, in examining Britain since 1914, we are not dealing with a moribund and internationally unimportant economy. Rather, we are looking at an economy which, in absolute terms, has performed better than ever before and one which contains centres of strength that are of immense significance in the 1990s. On the other hand, we are also examining an economy which fell from third to eleventh in terms of real GDP per capita between 1913 and 1979 and to seventeenth by 1994, and whose share of world exports of manufactures fell, between 1913 and 1979, from 31.8% to 9.7%. The purpose of this book is to analyse and explain both these aspects of Britain’s history [30, 43].

MEASURES OF ECONOMIC PERFORMANCE

What should be taken into account in measuring Britain’s economic performance? Overall economic growth rates (of Gross National Product (GNP)* or Gross Domestic Product) are an obvious starting point, though they have to be taken in comparison with Britain’s historic record or the contemporary performance of other countries. However, the USA or Germany have much bigger populations than Great Britain in the twentieth century, while a country like Belgium has much fewer people. Thus, indicators of national income on a per capita basis are a valuable refinement. Another important measure of performance is productivity; what are the returns on given inputs of labour, capital or other factors of production and how do these compare with historic or other countries’ figures?

Other matters might also be considered. The external balance of payments* and relative levels of inflation are examples of issues that can be seen as indicative of the health and expectations of the economy at a point in time. So too can the distribution of capital stock and the labour force or the make-up of production or sales. An over-commitment to goods or services for which demand is relatively stagnant or declining, e.g. shipbuilding, coal or cotton in the interwar economy, is ominous; an increasing presence in the world’s major growth sectors, e.g. motor vehicles after the Second World War or media and communications in the late twentieth century, is encouraging.

One final point to consider is whether trends in growth or the balance of payments are the only or best indicators of economic wellbeing. The real income of individual members of the population is clearly another important measure of the national economic condition. Employment levels are too. Unemployment is not only a waste of a valuable resource but also excludes individuals and families from the benefits of economic advance. Assessment of an internationally healthy economic performance in the 1930s or the late 1980s or mid-1990s has to balance that against the historically high levels of unemployment in those periods; conversely the internationally poor performance of the 1950s and 1960s must be set against the high levels of employment enjoyed in that period. Finally, it might well be argued that the conditions in which people live are the ultimate test of a nation’s economic state – not just material goods (including their housing) but also their health and the social and educational services and social security available to them.

MAIN ARGUMENTS

The overall debate about British economic performance in the twentieth century subsumes a number of important arguments concerning particular periods, sectors or contributions to that performance.

The first issue concerns the starting point. Did the British economic position of 1913–14 contain fundamental if hidden structural weaknesses that ensured its subsequent decline, or might any problems have proved temporary and remediable had it not been for the intervention of the First World War? Should we, as economists of the 1920s and 1930s tended to do, blame the war for the loss of overseas markets and the consequent unemployment?

Interpretations of the inter-war economy are similarly varied. Traditionally, there was an emphasis on lost markets and the problems of the staple industries, compounded by the deep cyclical depressions of 1920–22 and 1929–32. Economic growth in the 1930s was no more than recovery from the world-wide slump at the beginning of the decade. Historians writing in the 1960s and after, using data not available earlier, have taken a more optimistic view. Some have stressed the period as one of economic innovation, one which saw the development of new areas of manufacture and service and which, in growth terms, compared well with pre-1914 experience. There has also been debate as to whether the 1920s or the 1930s saw the more impressive performance or whether achievement in the two decades was broadly similar. A further issue has been whether the economy of the inter-war years performed as well as that of the late nineteenth century. Another area of dispute concerns Britain’s achievements compared to other countries in the 1930s. While a number of historians see this as one of perhaps only two periods during the twentieth century when the economy has performed relatively well, others (notably Alford) are sceptical, questioning the quality of the data available and the underlying strength of the 1930s upturn [25, 59].

Generally speaking, there is not a lot of disagreement concerning economic achievement during the period from 1939 to the beginning of the 1980s. Wartime organisation is generally praised but the potential for long-term damage acknowledged. While there is some criticism of government economic policy in the immediate post-war years, it is acknowledged that late-1940s difficulties were generally beyond British control. What was and is almost universally acknowledged and criticised is the lost ground of the ensuing decades. However, there has been disagreement as to the nature and causes of this. Some have criticised the performance of manufacturing industry, though opinions have differed as to whether this was the result of poor management and industrial relations, reflected in uncompetitive pricing or failings in quality, delivery or marketing, or the failure of banks and other financial agencies to support investment. Others have seen the problems as lying in the make-up of the British economy, with an over-commitment to slower growing sectors. Others, again, have seen difficulties as rooted in government action or inaction: ‘stop-go’ economic policies, high taxation, a heavy commitment to ‘non-market’ goods and services (in particular, welfare and military spending), lack of coherent economic planning and educational provision that was not geared to the needs of industry [Thatcher in 3, 14, 23].

The 1980s and 1990s are more controversial. Governments have emphasised these as decades of economic rebirth, the ‘enterprise economy’. They have been characterised by wide cyclical swings, booms and slumps on a scale not experienced since the inter-war years and perhaps not even then. They have seen an accelerated decline in many sectors of British manufacturing and a great growth of financial services and industries based on media and leisure. During the latter part of the period, there have been occasions when Britain’s unemployment and inflation rates, and sometimes even her economic growth rates, have compared favourably with those of other leading economies. The 1990s have seen huge inward investment. How to interpret this is a matter of lively debate and one not uninfluenced by the political persuasion of those concerned [6, 7].

Cutting across discussions about overall economic achievement are issues concerning sectors. This is apparent at the ‘macro’ level, e.g. the service sector as compared to manufacturing, or the ‘micro’, the relative performance of different industries. Does de-industrialisation matter if the services predominate in the world’s dynamic economic sectors? Is non-European investment in British-based manufacturing desirable if it is, in substantial measure, the result of Britain being an economy with low labour costs? And within manufacturing, isn’t the decline of some sectors (e.g. inter-war shipbuilding or cotton) and the rise of others (the manufacture of motor cars or artificial fibres) in the same period both historically inevitable and healthy? The only difference with past experience, and one which accentuates the price of mistakes and rewards of good decisions, is the ever-accelerating pace of change over the past 250 years.

There are major controversies concerning the role of governments in relation to the twentieth-century British economy. In the context of the period 1914–40, issues include the extent and pace of economic decontrol following the First World War, the deflationary policies associated with the return to gold in 1925, the failure to adopt Keynesian counter-cyclical policies in time of slump, the lack of commitment to regional regeneration and the overall contribution of the National governments of 1931–40 to the economic revival of that period. In relation to the period 1940–80, when Keynesian* principles of economic management were largely accepted, there are debates about the achievements in economic reconstruction from 1945 to 1950 and the effectiveness of government attempts to regulate the economy as a whole. There are also differing views concerning the impact of an increased commitment to social welfare on the resources available for investment in manufacturing or on the demand for goods and other services. Opinions also differ as to the potential and actual contribution of governments to the support and management of ailing industries (e.g. motor vehicles, shipbuilding) or to the encouragement and protection of areas of potential such as information technology. The relevance and usefulness of nationalisation or of heavy research investment in ‘defence’ industries provide further ground for dispute.

The years since 1980 provide a different agenda of issues. To what extent did government policies aggravate the problems of British entrepreneurs during the deep economic slumps of the early 1980s and 1990s? Have direct and indirect attacks on trade union power been instrumental in improving the efficiency of British industry and services? Have the incomes from North Sea oil and gas been used effectively? Has privatisation had a positive effect on economic performance of the sectors affected? Has there really been a retreat of government in matters economic?

Finally, there are issues, dating back to the later years of the nineteenth century, many of which might be described as essentially cultural. One is the extent to which any problems regarding overseas trade have been problems of marketing rather than problems of design, quality or price. Another concerns the scale of British overseas investment and whether this has diverted resources from home use. The relatively low status of economic activity and the lack of communication between political and economic elites, particularly in comparison with societies such as the USA or France, has also been offered as an explanation of Britain’s relative economic decline. This has been linked to the supposed failings of Britain’s schools and universities in respect of technological and commercial education.

Thus, whatever the assessment of British economic achievement during the period since 1914, that achievement and the reasons for it have certainly been centres of attention and debate. It is the intention in the remainder of this book to identify the essential elements of the different arguments and to evaluate the points made, to demonstrate that the nature and focus of any criticism has varied over time and, finally, to offer a summary comment on how British economic performance might be judged [55].

PART TWO:
THE BRITISH ECONOMY SINCE 1914

2 STILL COMPETITIVE: THE BRITISH ECONOMY IN 1914

On the eve of the First World War, Britain was one of the world’s three great economies. She was no longer the ‘workshop of the world’. The USA and Germany were forging ahead in industrial production. But Britain, as the greatest trading and financial power, remained at the centre of the international economy. Moreover, there was optimism that the under-achievements and threats of the last quarter of the nineteenth century had been overcome and that a new era of competitiveness, expansion and prosperity could be expected [Doc. 1].

At one time, economic historians tended to concentrate their attention on the so-called ‘Great Depression’ of 1874–96 and dealt with the Edwardian period mainly in the context of the ongoing problems of particular industries, notably iron and steel. With the arrival of revisionist assessments, offering more positive views of entrepreneurship and economic performance in the late Victorian period, came greater attention to the beginning of the twentieth century. These have, however, had to sit beside calculations which suggest that the turn of the century saw a decline in the rate of economic expansion with GDP growing at 2.0% a year from 1856 to 1899 but only 1.1% a year between 1899 and 1913. During the past ten years or so, debates have continued, with contributors to the Elbaum and Lazonick collection emphasising failure while others suggested a more cautious assessment of cause, if not of overall record [33, 42, Floud in 72].

All historians accept that the pace of growth of the British economy, which had been slowing since the mid-nineteenth century if not earlier, declined further in the period 1900–07 (but also that it showed a slight recovery in the years 1907–13). They agree, too, that Britain’s rate of economic growth in the late nineteenth and early twentieth centuries was slower, in per capita as well as absolute terms, than that of major rivals like Germany and the USA. There is also general acceptance that British investment in producers’ equipment was lower as a percentage of GDP than that of her two main rivals. However, they disagree about the significance of this situation and about its causes [Floud in 72, 78].

BRITISH INDUSTRIES IN 1914

Arguments about the state of the economy in 1914 turn on the performance of the great staple industries, Britain’s showing in new and generally science-based industries and the impact of overseas investments on overall economic performance. Discussion here will be limited to four staples (steel, cotton, coal and shipbuilding) and three ‘new’ industries (electrical engineering, motor vehicles and chemicals). It is recognised that various other branches of engineering or major sectors like wool textiles or agriculture might, equally appropriately, have been selected.

The steel industry, a staple industry but also one in which science played an important part, has often been singled out as an exemplar of British economic decline. From a position of supremacy in the 1870s, British output had fallen far behind that of the USA or Germany. Over the five years 1910–14, British annual output averaged some 7 million tons while that of Germany averaged 15 million and that of the USA 27 million. An increasing proportion of British steel was produced by the open hearth method, which provided better quality control than the Bessemer process, but a majority of the output remained acid steel, requiring ores that were low in phosphoric content. US and German producers benefited from home markets that were protected by tariffs. A guaranteed home market, especially one dominated by huge corporations like US Steel or cartels*, encouraged investment in large-scale integrated plant utilising the latest technology. Such plant gave US and German producers a competitive edge in other markets, including Britain itself.

The British industry, by contrast, comprised modest-sized family firms, lacking the capital resources or the market to justify investment in the latest, implicitly large-scale and integrated plant. Its major products, ships’ plates (which took 42% of the British open hearth steel), sheet steel...

Table of contents

• Cover
• Half Title
• Title Page
• Copyright Page
• Table of Contents
• An introduction to the series
• Acknowledgements
• Note on Referencing System
• Abbreviations
• PART ONE: THE BACKGROUND
• PART TWO: THE BRITISH ECONOMY SINCE 1914
• PART THREE: ASSESSMENT
• PART FOUR: DOCUMENTS
• Glossary
• Bibliography
• Index
• Related Titles